A new product is being considered by Stanton Corp. An

outlay of $40,000 is required for equipment and an

additional net working capital investment of $1000 is

required. The project is expected to have a 4 year life

and the equipment will be depreciated on a straight line

basis (equal annual amount) to a $4,000 book value.

Producing the new product will reduce current

manufacturing expenses by $5,000 annually and

increase earnings (revenue) before depreciation and

taxes by $6,000 annually. Stanton's marginal tax rate is

40 percent. Stanton expects the equipment will have a

market salvage value of $10,000 at the end of 4 years.

Question: What is the depreciation each year over the

machine's 4 year life?

9,000

9,250

10,000

10,250

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